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Thursday, January 31, 2013

Jonathan Nitzan and Shimshon Bichler in their work ‘Capital as Power’ bring us directly to the essential point: the fundamental fact of our socio-economic system is power. Capital isn’t a “factor of production”; it’s simply power, nothing more. That capital is power and power is capital is a highly fruitful simplification which must be accepted if we are to understand the nature of our system.

A brief look around shows us that the capital / power identity is self evidently true. In the United States, we know that the bottom 80% of the population owns just 7% of financial wealth and it’s about the same everywhere else. It’s certainly even more unequal than this given the massive hoards held in secret “offshore” accounts. Just 500 corporations control 40% of global sales and every major industry is under oligopolistic control.

David Rothkopf, well connected former managing director of Kissinger Associates, observes in his book ‘Superclass – The Global Power Elite and the World They Are Making’, that “A global elite has emerged over the past several decades that has vastly more power than any other group on the planet” and estimates that this elite numbers just 6,000 individuals. Stefania Vitali, James B. Glattfelder, and Stefano Battiston performed a comprehensive network analysis of direct and indirect corporate control and found that control is concentrated within a “tightly knit” core of financial institutions which they brand a “super-entity”. According to them, just 737 global holders control an incredible 80% of the value of all transnational corporations.

These are stark figures indeed and they make a mockery of such mainstream economic ideas as unfettered free markets....

Capitalism is a system of exploitation and mass prosperity is simply not part of the equation. The great “economic” problems of our world can be directly traced to this fact

Let’s look at the system from a very high global level, assuming realistically that there are two fundamental classes, owners and workers, that our productive capacity is far above what is being utilized, and production is only undertaken when it’s profitable to owners. We can easily demonstrate that worker consumption can never be stand alone profitable to the owners. This is because the total possible sales proceeds for the owners are limited to the wages paid to the workers. No matter how hard the owners may try, sales for worker consumption products will always exactly equal the wages paid out and there will never be a profit.

Excluding the unsustainable possibility of ever rising worker debt, this is self-evidently true. A company cannot make a profit selling only to its own workers and similarly the consumer industry as a whole cannot make a profit selling only to consumer industry workers.

The unprofitability of worker consumption is a fundamental and greatly under-appreciated reality of the capitalist system. Simple logic tells us that workers will not be employed to produce for their own good. They won’t because it can’t ever be profitable.

What I’ve said will be obvious to most of my readers and for that I apologize. But it’s not obvious to the many center-left “liberals” out there nor the well intentioned “centrists”, so I think it’s worthwhile to keep trying to simplify things. And the most fruitful simplification I think we can make is that capital is nothing but power.

So, is the inequality between worker and capitalist unjust? You can certainly tell just-so stories in which it isn't. But Marxists take a historical perspective. Marx devoted a large part of Capital vol I to describing "primitive accumulation", the process whereby capital came into the world as a result of theft, slavery and conquest: "capital comes dripping from head to foot, from every pore, with blood and dirt." This is, of course, no mere history: how did Russian oligarchs get rich?

An overlooked difference between Marxists and their opponents is that Marxists think this matters.

Our world is structured by how wealth gets produced. As I argue in my book No Local: Why Small-Scale Alternatives Won’t Change The World, capitalism is a system of making wealth socially and keeping it privately. Most of us, the ‘99%’, have to work; a very small number of people, the capitalists, get to own.

The latter face two major problems: they have to expand their production and lower their costs or risk competitors swallowing them up. This constant drive to expand creates unnecessary production and crisis. When the profit rate falls, capitalists have to do everything in their power to restore it. That can mean a recession and austerity, or even a war – anything to eliminate excess capacity and ‘surplus’ workers.

How we respond to this austerity – resistance or adapation – depends on how we understand capitalism. Localism sees it as uneven and fragile; the dispossessed can operate at the margins to create a fulfilling life for themselves. The alternative, a democratic, revolutionary socialism, agrees that capitalism is unstable and open to change, but not at the margins: rather, capitalism creates its own grave-diggers at its very centre. The working class, who have nothing to sell but their work, create everything and can therefore run everything. Capitalism can be organized against and overcome.

In the abstract, we can choose both. By going back to the land, we can create communities of resistance that provide the material and moral strength to resist neoliberalism. However, by not confronting capitalism, this localist form of citizenship fails on every level: ethical, practical and political.

Methodological localism emphasizes two ways in which actors are socially embedded. Actors are socially situated and socially constituted.

Socially situated. In any given situation individuals are embedded within a set of social relations and institutions that create opportunities and costs for them. They have friends and enemies, they have bosses and workers, they have neighbors and co-religionists, they have families. All of these relations and institutions serve to constitute the environment within which they make plans and perform their actions....

Socially constituted. The second form of social embeddedness is deeper and more persistent. The individual’s values, commitments, emotions, social ideals, repertoires of action, scripts of behavior, and ways of conceiving of the world are themselves the products of a lifetime of local social experiences. Individuals are socialized throughout their childhoods and adult lives into specific ways of thinking and acting, and the mosaic of these experiences serves to constitute the moral, emotional, and practical characteristics of the individual’s social-cognitive system. The way the individual thinks about the social world is itself a feature of his/her social setting. Moreover, the mechanisms of socialization—schools, religious institutions, military experience, playgrounds, families—are themselves concrete social phenomena that are amenable to empirical sociological investigation, and they too are locally embodied....

These two aspects of embeddedness provide the foundation for rather different kinds of social explanation and inquiry. The first aspect of social embeddedness is entirely compatible with a neutral and universal theory of the agent -- including rational choice theory in all its variants. The actor is assumed to be configured in the same way in all social contexts; what differs is the environment of constraint and opportunity that he or she confronts....

The second aspect, by contrast, assumes that human actors are to some important degree "plastic", and they take shape in different ways in different social settings. The developmental context -- the series of historically specific experiences the individual has as he/she develops personality and identity -- leads to important variations in personality and agency in different settings. So just knowing that the local social structure has a certain set of characteristics -- the specifics of a share-cropping regime, let us say -- doesn't allow us to infer how things will work out. We also need to know the features of identity, perception, motivation, and reasoning that characterize the local people before we can work out how they will process the features of the structure in which they find themselves. This insight suggests a research approach that drills down into the specific features of agency that are at work in a situation, and then try to determine how actors with these features will interact socially and collectively.

If both actors and structures differ substantially across social settings, then there are many possible pathways that interactions and processes can take.

Daniel Little's methodological localism is a weak form of methodological individualism, the strong form being methodological atomism, or the view that by everything can be known about a group by examination of the individuals alone, apart from their relations.

My own view is that of methodological holism, toward which the concept of being "socially constituted" points.

Methodological holism is based in the assumption that societies are complex adaptive systems rather than mechanical ones. This is different from methodological collectivism, which holds that everything can be known about a system, including the elements, by examining the system alone, apart from individual elements.

Most social scientists reject methodological atomism and collectivism, and focus on either methodological individualism or holism. Generally the disagreements are over "microfoundations." Methodological individualists insist on strong microfoundations, while methodological holists emphasize context.

Methodological holism recognizes that individuals in human societies are related through reflection, reflexivity, and reciprocity as individuals, and interconnected through social, political, and economic institutions in such fashion that their behavior is interdependent.

In addition, cultural beliefs, traditions, and rituals provide the contexts and sub-contexts in terms of which individuals relate not only to others but also to themselves. Individuals are not only embedded in context in the sense of being situated, but also their worldview, language, customs, values, norms, preferences, attitudes and so forth are constituted by context. Not only are individuals different across contexts, but also individuals change (adapt) as context shifts, resulting in emergence that is not predictable based on prior data.

The stronger the methodological individualism, the more a priori assumptions can be. The greater the methodological holism, the more a posteriori assumptions must be in order to make space for adaptation and emergence.

Almost everything we do these days leaves some kind of data trace in some computer system somewhere. When such data is aggregated into huge databases it is called “Big Data”. It is claimed social science will be transformed by the application of computer processing and Big Data. The argument is that social science has, historically, been “theory rich” and “data poor” and now we will be able to apply the methods of “real science” to “social science” producing new validated and predictive theories which we can use to improve the world.￼What’s wrong with this?...Looking for “patterns or regularities” presupposes a definition of what a pattern is and that presupposes a hypothesis or model, i.e. a theory. Hence big data does not “get us away from theory” but rather requires theory before any project can commence.

What is the problem here? The problem is that a certain kind of approach is being propagated within the “big data” movement that claims to not be a priori committed to any theory or view of the world. The idea is that data is real and theory is not real. That theory should be induced from the data in a “scientific” way[1].

I think this is wrong and dangerous. Why? Because it is not clear or honest while appearing to be so. Any statistical test or machine learning algorithm expresses a view of what a pattern or regularity is and any data has been collected for a reason based on what is considered appropriate to measure. One algorithm will find one kind of pattern and another will find something else. One data set will evidence some patterns and not others. Selecting an appropriate test depends on what you are looking for. So the question posed by the thought experiment remains “what are you looking for, what is your question, what is your hypothesis?”

It seems to me that one must at least try to answer this question if one is to pursue social science. Not just because it is good science but also because it has ethical and political implications.

The view one takes of social phenomena, either consciously or through algorithms and data, frames what is and is not conceivable for past and future social reality. If you doubt the importance of such ideas one should look that the history of the 20th century. Ideas matter. Theory matters. Big data is not a theory-neutral way of circumventing the hard questions. In fact it brings these questions into sharp focus and it’s time we discuss them openly.

One such is a group of intellectuals who go by the rather unwieldy name of Mouvement Anti-Utilitariste dans les Sciences Sociales, or MAUSS, and who have dedicated themselves to a systematic attack on the philosophical underpinnings of economic theory. The group take their inspiration from the great early-20th century French sociologist Marcel Mauss, whose most famous work, The Gift (1925), was perhaps the most magnificent refutation of the assumptions behind economic theory ever written. At a time when "the free market" is being rammed down everyone's throat as both a natural and inevitable product of human nature, Mauss' work - which demonstrated not only that most non-Western societies did not work on anything resembling market principles, but that neither do most modern Westerners - is more relevant than ever. While Francophile American scholars seem unable to come up with much of anything to say about the rise of global neoliberalism, the MAUSS group is attacking its very foundations.

Although the objectivity-Grail Quest has ended with total success decades ago (so economists say), the question of the possibility and consequences of economists' values smuggling into their daily practice still periodically surfaces, and crises make good times for such debates. Yet, not often do we historians too ask how economists' values should be handled in our writing.

One way to deal with such values is to consider them a symptom of one or several economist's ideology or political beliefs. In such framework, scientific work is consciously or unconsciously subdued to the pursuit of an agenda, be it the defense of neoliberalism, of Western democracy, of individual freedom, of rational choice as a guide to consumption, production procreation, etc.

It is however possible to conceive values in a sense that doesn't entail that the production of scientific knowledge is twisted, changed or distorted by personal features (which presupposes the reference to an external and pure yardtick). The historian simply assumes that scientific endeavours are a way to make sense of (value) the world. Economists' practices thus simply embody a set personal features to which I like to refer as a worldview. In that sense, value-laden means “personal.”

Interesting from the aspect of acknowledging that all knowledge is expressed in terms of a worldview, with worldviews being bounded by the norms (values, criteria, methodology, etc.) that define and delimit a worldview, but seemingly not to well-informed about relevant debates in the philosophy of science. Progress over the usual simplistic approaches in economics, though.

Graham Barnes reviews Money and Sustainability: The Missing Link by Bernard Lietaer, Christian Arnsperger, Sally Goerner and Stefan Brunnhuber. Opposes public or private monopoly of currency, similar to free banking in order to increase resilience by adding redundancy which admittedly is accomplished by trading off efficiency.

In most theories of non-rational expectations, like Bayesian learning or rational inattention, expectations evolve in a smooth, stable way. And so these models, as Chris Sims writes, look reassuringly like rational-expectations models. But there is no guarantee that real-world expectations must behave according to a stable, tractable model. I see no a priori reason to reject the possibility that expectations react in highly unstable, nonlinear ways. Like tectonic plates that build up pressure and then slip suddenly and unpredictably, expectations may be subject to some kind of "cascades". This can happen in some simple examples, like in the theory of "information cascades" (In that theory, people are actually rational, but incomplete markets prevent their information from reaching the market, and beliefs can shift abruptly as a result). In the real world, with its tangle of incomplete markets, bounded rationality, and structural change, expectations may be subject to all kinds of instabilities.

Anyone that has traded much knows how this goes. Expectations can and do run wild. As Baron Rothschild is famous for observing back in 1871, "Buy when blood is running in the streets." But it takes a strong stomach — aided by very deep pockets or the faith that moves mountains — not to get sucked in by runaway irrational expectations that seem perfectly rational.

If we are in a period of political transition, it is no wonder that things seem difficult. And that may be why, at this particular period of time, people are casting about for solutions to dysfunction, and calling for constitutional amendments. But within five years or so, all that will change, and it will change without the need for new constitutional amendments, much less a new constitutional convention. To be sure, I do not oppose the idea of new constitutional amendments; I simply think that the current dissatisfaction and urge for profound change is symptomatic of something else.

The most interesting conclusion that I took from the conference, then, is that the diagnosis of dysfunction may be a misdiagnosis. Our constitutional system may not be unworkable. America may not be ungovernable. Rather, we are in the middle of a transition from an older, exhausted political regime to a new one. That transition may be difficult, but it will also be temporary.

BalkinizationDysfunctional Constitution or Regime Change?Jack Balkin | Knight Professor of Constitutional Law and the First Amendment at Yale Law School. Professor Balkin received his Ph.D. in philosophy from Cambridge University, and his A.B. and J.D. degrees from Harvard University.

It’s early, but Salon has published on January 30, 2013 either the funniest or saddest column of the year to date: “Are Banks Too Big To Prosecute?”

The column is attributed to Matthew Yglesias, a blogger who studied philosophy as an undergraduate. It could be a brilliantly ironic satire of the Geithner, Holder and Breuer doctrine of immunity for banksters (which I am dubbing “GHB” for short). GHB is the “roofie” that the Obama administration gave us so the banksters could screw us repeatedly with impunity. Alternatively, and far more likely, Yglesias has written the saddest and most immoral apologia for elite white-collar crime that has yet made it into electronic bits. It takes a rerouted beginning student of philosophy, posing as a commentator on finance, to replace what should be a discussion that includes virtue ethics with a virtue-free, criminology-free, and economics-free apologia for the felons who became wealthy by costing the Nation $20 trillion and 10 million jobs.

Matthew Yglesias wrote a similar column on April 14, 2011 embracing the Geithner immunity doctrine. He titled it: “The Fraud Free Financial Crisis” – and it proves our family’s rule that it is impossible to compete with unintentional self-parody.

Here’s his thesis. Sure, Megabanks committed tons of fraud. But we cannot prosecute banks for the fraud because that would bring them down. And the bigger they are, the more fraud they perpetrated, but the bigger the insolvency hole if we investigated them. So best to bail them out and look the other way.

This is what all the gun nuts are teaching us. Guns never kill people. Insane people kill people. Guns are just a tool that allows the insane to kill massive numbers in schools, shopping malls and offices.

Black, especially, excoriates Yglesias for being having majored in philosophy major, but now displays no understanding of ethics, and seems to think that expediency is a rational criterion in moral choice. So he is not only accepting of a double standard of justice based on privilege deriving from position but also attempts to justify it based on pragmatism and moral relativism. Flunk in ethics, and makes one wonder if he is a political flunkie.

While I usually use Friday’s blog space to provide draft versions of the Modern Monetary Theory textbook that I am writing with my colleague and friend Randy Wray, today I am departing from that practice (deadlines looming) and devoting the next two days to textbook writing. We expect to complete the text during 2013 (to be ready in draft form for second semester teaching). Comments are always welcome. Remember this is a textbook aimed at undergraduate students and so the writing will be different from my usual blog approach. I am currently working on Chapter 11 which opens like this:

Chapter 11

11.1 Introduction and Aims

In Chapter 10, we discussed issues relating to labour market measurement. In this Chapter we will focus on theoretical concepts that underpin the measurement of economic activity in the labour market and the broader economy.The Chapter has five main aims:

To explain why mass unemployment arises and how it can be resolved.

To develop the concept of full employment.

To consider the relationship between unemployment and inflation – the so-called Phillips Curve.

To develop a buffer stock framework for macroeconomic management (full employment and price stability) and compare and contrast the use of unemployment and employment as buffer stocks in this context.

To more fully explore the concept of a Job Guarantee (employment buffer stock) approach to macroeconomic management.

NOTE: The Keynes and Classics series so far is:

Keynes and the Classics – Part 1 – explains how the Classical system conceived of labour supply and demand and how these come together to define the equilibrium level of the real wage and employment.

Keynes and the Classics – Part 2 – explains how the labour market determines the level of employment and real wage, which in turn, via the production function set the real level of output.

Keynes and the Classics – Part 3 – tied the previous conceptual development into the denial that there could be aggregate demand failures (Say’s Law), introduced the loanable funds market and discussed the pre-Keynesian critique (Marx) of the Classical full employment model.\

Keynes and the Classics – Part 4 – which began Keynes’ critique of Classical employment theory.

Keynes and the Classics – Part 5 – continues the critique of Classical employment theory.

Keynes and the Classics Part 6 – considers Keynes’ critique of the Classical Theory of Interest.

Keynes and the Classics Part 7 – introduces the preliminary concepts in developing a macroeconomic theory of labour demand.

Today I complete the conceptualisation of a macroeconomic labour demand curve.

11.16 The macroeconomic demand curve for labour

MATERIAL HERE FROM LAST WEEK … THE FOLLOWING SECTION IS WHERE I REACHED LAST TIME AND IS SLIGHTLY RE-WRITTEN TO BETTER DEVELOP THE ARGUMENT.

This blog extends the discussion in yesterday’s blog – Exploring pro-cyclical budget positions – which is why I am running them on consecutive days. Not that I think any of my readers (Austrian schoolers and other conservatives aside) have memory issues! The discussion that follows focuses on ways in which we can interpret the fiscal stance of a government and hopefully clears up some of the confusion that I read in E-mails I receive from readers. I say that not to put anyone down but rather to recognise that the decompositions of budget outcomes and analysing the direction of fiscal policy on a period-to-period basis is not something that the financial press usually focuses on. In avoid[ing] detailed analysis, the press leaves lots of misperceptions unchallenged and often the wrong conclusions are drawn. I am not talking about policy preferences here. Just coming to terms with the facts is sometimes difficult for many commentators to achieve. But, of-course, the “facts” are also sometimes difficult to discover given that the methods used to produce them are often ideologically biased (I am talking here about the decomposition of the actual deficit into structural and cyclical components requires a full employment benchmark, which is where the fun starts.

I wouldn’t want anyone to get the impression that I had a set on Dr Frankel. It is just that his two recent articles represent the classic deficit dove position, which unfortunately holds sway among most progressives, to the detriment of the advancement of progressive thought.

My friends in import/export tell me much the same thing. Americans are interested in price and quantity rather than quality, whereas international buyers are interested in quality and are willing to pay the price to get it. But I'm not sure that this is anything that new, i.e., Wal-Mart inspired.

Rather, it's likely that Wal-Mart has been successful seemingly because Americans want inexpensive goods and don't care if they are cheap, too, since "stuff" is not expected to last long anyway.

International buyers have a different mentality, wanting high quality products that will last them for some time. In other words, non-Americans tend to be savvy shoppers, while American enjoy shopping. Utility is a cultural thing, apparently.

The biggest clue to how incomes rose while the economy stalled is contained in the Commerce Department's data about the sources of rising income. Of the $353 billion income rise, $268 billion came from dividends. That is, dividends accounted for around 75 percent of the total increase.That is a breath-taking rise. As Steve Liesman pointed out this morning, monthly dividends have only increased by more than that only once in the past 50 years — in 2004, thanks to a record-breaking dividend from Microsoft.

Much of the hike in dividends seems likely to be due to companies paying shareholders before the expiration of Bush-era tax cuts on dividends. And so, ironically, the looming hike on dividend income actually resulted in a dramatic rise in that income. Taxes drove income up.

Even some of the non-dividend income increase might have been driven by higher taxes, as some firms paid bonuses out early to avoid having them taxed at a higher rate in the new year.

Winterspeak presents a brief and clear statement MMT-based answer to the conventional wisdom presented by Megan McArdle. Pass it along. I @tjfxh just tweeted it. There's no Twitter button at Winterspeak's, so either use an app like Add This, tweet this post, or retweet my tweet.

It's also clear - just from watching the movie - that familiarity with the tactical tool is there, but the actual goal, intent & strategy is still superficial.

That superficiality is actually a serious threat. Everyone lacking both Situational Awareness and the ability to adequately manage situational awareness in real time ... STILL thinks that there actually is a verifiable "one, most important thing we can do."

And, of course, most are initially also certain that what THEY are personally certain of ... is certain to solve all problems if simply scaled up to be an assumed certainty for all. Most of the time, that's a fallacy of scale. For example, if you stand up at a sports stadium, you'll likely get a better view. Therefore, obviously, if EVERYONE stands up, they'll ALL get better views. Right? For most suggestions, we can't predict the outcome, and must practice finding out, the sooner the better.

Our naively distributed certainty in the face of uncertainty is a constant threat to all of our distributed efforts, even as it simultaneously provides the roots of our Adaptive Rate. All the metaphorically blind men groping a group situation still offer themselves the best avenue for success. They just have to organize, compare notes, and use their imagination.

Given we have 315 million and growing "situationally blind people," how do we generate the group agility needed to master constantly accelerating change and increasing complexity? Do we all just keep leaping to our feet at the Situation Stadium, while getting more and more frustrated?

Group Practice? There are endless ways to initiate and continue organized practice, but here's one set of suggestions, just to get someone's ball rolling.

[If you, as another scout, have even better suggestions, by all means, let all of us hear them, yesterday if possible. And no, 50,000 offers to buy yet another book, for $50, or even $10, just isn't feasible. Just pick up a phone and call, or send a free pdf, NOW!]

First off, remind everyone that we face constant, distributed, statistical SELECTION tasks? A temptation to organize?

Second, remind them that all continuous selection tasks depend upon scouting - i.e., sampling - strategies, re-sampling and the tempo of re-sampling?

Third, keep everyone comfortably practiced at both the process of continuous checking and re-checking AND the practice of rapidly and openly sharing more, if not all, of our sampled data, at high tempo, and upon demand. Pass-through societies are agile societies. Tuned Situational Awareness = Selectively Tuned Knowledge Throughput, whether in a network of computers, neurons or humans.

Fourth, keep everyone comfortably practiced at coordinating the amazing return-on-coordination available with scalable teamwork, and everything that teamwork entails. Behaviour drives mood in individuals. Group practice behavior drives social mood.

Even group or distributed Situational Awareness doesn't help if we don't have an adequate and adequately distributed sense of our own Adaptive Rate. This is an ancient observation. To map our survival to changing conditions, we must know both our "opponents" - our situations - and ourselves. In a continuous re-mapping task, it helps immensely to know, leverage and even prod the Adaptive Rate of both ends of the mapping process.

We've always known that. We just don't maintain adequate practice at actually performing it. In general, more OBT&E might help.

If we want to manage our net, National Adaptive Rate - our NAR - why not formulate an open measure of NAR, similar to NIPA, and then practice managing it? Biofeedback works. Social feedback does too, if we bother to adequately sample it, openly share the feedback, and act on it.

This should not come as a surprise to our readers. AP report at Yahoo.

September through December deficits netted to only $221B or only $55B per month while Mike has tracked trailing twelve month average deficits at $90B per month; which was minimally required for, as Warren terms it, a "muddle through" economy. We have now broken below "muddle through" looks like.

January trend does not look promising at this point either, month to date only a $23B deficit.

"If the Fed were to record a loss, it could print its own money to cover its expenses—at no cost to the Treasury. The Fed would record a loss as a deferred asset, which would represent how much money the Fed would need to make up before it started sending profits to the Treasury again." (Wall Street Journal)

Tuesday, January 29, 2013

Sometimes one agrees with a conclusion but realises the logic that was used to derive the conclusion was false. Which means that the person will get things wrong when applying the logic to other situations. This is almost always the case when we encounter the reasoning offered by so-called deficit doves. These are economists who do not out-rightly reject the use of deficits but typically below them to be cyclical phenomenon only and should thus be offset at other points in the economic cycle by surpluses – the so-called balanced budget over the cycle rule. While many progressives think that is a sensible strategy – the reality is that it is an unsustainable fiscal rule to try to follow. The same economists talk about the dangers of pro-cyclical fiscal positions but fail to appreciate that such positions are desirable in certain cases and there is a fundamental asymmetry that applies to evaluation the desirability of a “cyclical” position. Fiscal austerity (pursuing surpluses when the economy is contracting) is never appropriate whereas expanding the deficit when the economy is growing might be. It all depends. This blog aims to clear up some of these misconceptions.

The American Prospect (December 19, 2001)Keynes, Einstein, and Scientific RevolutionJames K. Galbraith | Lloyd M. Bentsen Jr. Chair in government-business relations at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, a senior scholar of the Levy Economics Institute, and chair of the Board of Economists for Peace and Security

I recently came across a video of one of my talks on the Global Financial Crisis, or, Global Economic Crisis, that provides a clear antitdote to orthodox thinking. You can view it here:

“The Financial Crisis Viewed from the Perspective of the Social Cost Theory”, Social Cost Workshop, Wright State University, Ohio, April 27, 2012; video here (begins approximately at the 23 minute mark) :Here is a summary of the argument, and a link to a relevant paper is at the bottom. This is perhaps my clearest presentation on the topic.

This should not be a surprise to anyone with a basic economics education. At the heart of our system of property and tax laws is a fundamental redistribution of wealth from producers to non-producers. This is in the form of the claims on production by landed interests as recipients of rents (imputed and as charges to lessees). Economics and economists as a group have largely ignored the moral question of whether societally-created rents need to be publicly collected as the logical source of revenue to pay for necessary public goods and services. The privatization of rents (which is unearned income to individuals and entities) has meant the taxation of legitimately earned income flows, capital goods and other assets as well as commerce, imposing heavy debt weight losses on the economy.

...the bottom line is pretty simple: This is a transparent effort to reduce taxes on the rich and increase taxes on the poor and the middle class. No matter how flowery their speech, Republicans remain hellbent on cutting taxes on the rich no matter what the consequences. Given how well the rich have done recently and how poorly the middle class is doing, this is nothing less than jaw dropping.

Piero Sraffa’s classic work "Production of Commodities by Means of Commodities" has been variously interpreted as a special case of modern neoclassical general equilibrium or a foundation stone for the revival of the classical tradition of Smith and Ricardo.

Ajit Sinha breaks new ground by viewing the book through the eyes of Sraffa himself, using archival resources to uncover the philosophical underpinnings of the book in the work of Wittgenstein and others.

Sinha argues that Sraffa’s framework doesn’t require equilibrium conditions to work - while most other theories of price do - allowing for an empirical understanding to economics that is closer to the real-world situation of market disequilibrium.

According to Sraffa, the prices we observe in the world are simply the way the economic system achieves a given distribution of income at a given moment in time. This new interpretation opens up the revolutionary possibility of a microeconomic foundation in price theory that’s compatible with the macroeconomics of Keynes.

I HATE this Mike Bloomberg with a passion. When will he understand that spending cuts are the fiscal equivalent of tax increases, they just hit a lower income strata? When you say you are just going to only pass spending cuts, but not raise taxes, you are saying that you are going to raise taxes on the middle class and poor. That's exactly what you are doing and it is completely unjust.

NYC schools are going to lose about $250 million in funding thanks to Bloomberg. My kids go to public school and I've been getting hit up for donations and fees left and right from even before these cuts. That's a tax on me and it's about to go up.

I am not one of Mike's billionaire friends, who can easily afford to pay more. It's just unfair and unjust and immmoral to ask me and families of even lesser means to have to cough up more while the wealthy get off scott free.

"Without the extra budget, the economy would fall into a severe situation in April-June," he added."

...

Are they saying that Lewis Carrol is not dead? That he's just left the planet? And he's running a virtual CB from the bottom of some rabbit hole? This is idle comedy for kids, and shouldn't be seen in responsible policy circles.

Uh ... let's get this straight. Context first. We'll worry about the random data noises once they're relevant to a coherent context.

1) Japan is a sovereign fiat currency issuer? [Check!]

2) They decide on public purpose, then their parliament "appropriates," notes or declares into existence the dynamic liquidity units needed to coordinate all the dynamic transaction chains involved in achieving said public goals? [Check;
It's called organizing via dynamic affinity bonds & social credits. Even termites do it.]

3) Then parliament directs their currency-issuer office to create the liquidity units needed, and distribute them to contractees & other recipients via a publicly-licensed banking system - so they can all innovate while achieving or exceeding as well as aligning their distributed goals? [Check!]

4) Then the banking system & currency-issuer Agency start jumping through hoops & inventing arcane ways to enter net currency expansion into what they prefer to claim is an exact, static, double-entry bookkeeping system? [Whatever! - not worthy of designation as a "check;" not even termites make themselves jump through such hoops.]

5) Receiving no push back, the static bankers go on to tell the dynamic electorate that dynamic reality must conform to their static declarations in order for the static accounting to work? [Come again? Who's running reality? Dynamic realists, or the static Stasi? This check bounces too high to take seriously.]

6) Then bankers go on to say that the electorate must give the liquidity units back as taxes, so that the fiat currency issuer has enough fiat to give to the electorate. Capiche? [Hell no? What part of "appropriate" don't bank nerds understand? This particular hoop deserves a check-refusal, not a "check."]

7) Solution is easy. It's our reality but the bankers accounting problem.If you have to ask which takes precedence, then you can't afford it. Dynamic reality eventually tells static accountants to allow for a special category within double entry accounting, dynamic growth LAYERED ON TOP OF a static accounting model.

Is this our legacy? Will we maintain some real logic in our operations, or will our epitaph be: "We came, we saw, ... we ceded reality to criminally-stupid gnomes training us to jump through their hoops?"

Accountants may claim to not believe in quantum tunneling, but they sure exhibit Quant-Dumb funneling of dynamic value into static sinkholes. Time for a big bang? Why not? There's no accounting for improbability.

Revealing editorial from Joe Scarborough at POLITICO, based on an appearance by Paul Krugman on Scarborough's MSNBC show, excerpt:

Mr. Krugman's view is that Americans would be better off if its government ran deeper deficits and ignored its longterm debt. That, of course, runs counter to conventional wisdom across the Western world, which is exactly why the New York Times columnist believes Spain and Great Britain are suffering through endless recessions.

His argument also runs counter to what I have been saying in Congress and in the media since 1994. So it would be no surprise that the guy who wrote this, and this, and this and this over the past week would take exception to Mr. Krugman's words. But most of our viewers did not tune in to hear me talk over the Nobel Prize winner. They tuned in to hear Paul Krugman. So I did my best to give him space.

But maintaining calm was not as easy for Council on Foreign Relations president Richard Haass, who agrees with former Joint Chief chairman Michael Mullen, that longterm debt poses the greatest threat to America 's national security. Richard took exception to the suggestion that deficits don't matter and that longterm debt can be pushed to the side for years to come . Mr. Haass, Admiral Mullen and former Clinton chief of staff Erskine Bowles all believe that entitlements and debt are the most pressing challenges we face as a country over the next few decades.

You can add my liberal co-host, Mika Brzezinski, to that group. Mika let out a gasp when Mr. Krugman suggested Medicare and Medicaid shortfalls should be ignored. She compared Krugman's "head-in-the-sand" approach to the one taken by climate change deniers. Krugman took exception, saying that no one could predict the future of entitlements so there was no need to worry until the programs became insolvent.
That response drew a spirited email from former Treasury official and “Morning Joe” regular Steve Rattner in defense of Mika's analogy, who wrote the following:
"We are putting millions of tons of carbon in the air every day; we are also adding billions of dollars to our future entitlement obligations every day. We are borrowing (stealing?) from our children to pay far more in benefits to seniors than we are paying into the system.

One thing I would say to Paul Krugman is "Paul, you are NOT alone. It is NOT you against the world".

There are many of us out here both within and outside the academe of economics, both from the political left
AND political right, that agree with your assessment on the nature of a federal budget deficit and government securities and understand the difference between REAL and FINANCIAL constraints; and we too do our best to combat this fiscal ignorance that has been foisted upon the western world and take our own hits in the process.

An oldie but goodie from Jamie Galbraith, hat tip to Philip Pilkington.

The deeper problem is the nearly complete collapse of the prevailing economic theory--of the structure of thought that supports their policy ideas. It is a collapse so complete, so pervasive, that the profession can only deny it by refusing to discuss theoretical questions in the first place.The prevailing theory is the idea that price and quantity are set in free competitive markets through the interaction of supply and demand. It is this idea, and no other, that lies at the core of the economist's way of thinking. And it is also the source of the profession's problem in getting almost anything important right.

The notion of supply and demand as the organizing principle for everything is a few decades more than a century old. (It was not so for Smith, Ricardo, Malthus, Marx, or Mill.) The key player in the Anglo-Saxon tradition is Alfred Marshall; in the continental tradition, no doubt, Leon Walras. In the twentieth century, great economists including Keynes, Joseph Schumpeter, and John Kenneth Galbraith have tried to break the grip of this notion on the professional imagination. But they have not succeeded.

The American Prospect (December 19, 2001)How the Economists Got It Wrong
James K. Galbraith | Lloyd M. Bentsen Jr. Chair in government-business relations at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, a senior scholar of the Levy Economics Institute, and chair of the Board of Economists for Peace and Security.

The question, therefore, for socialists and everyone else is: through what mechanisms and institutions is behaviour shaped? Could socialistic institutions generate more good behaviour and less bad than capitalistic ones? There are (at least) three reasons to think so:

On several occasions I've referred to Robert Nelson's Economics as Religion: From Samuelson to Chicago and Beyond. Philip Pilkington provides an excellent review and critique, explaining neoclassical general and partial equilibrium v. Wynne Godley's stock-flow equilibrium.

Central to the Old Keynesian and Post Keynesian v. Neoclassical and New Keynesian controversy, as well as calling out economic moralizing for what it is.

The only way I can think to improve on this post is to add a quotation from Randy Wray about High Priest Paul Samuelson:

The reaction to our post on the nine myths also reminded me of an interview Nobel winner Paul Samuelson gave to Mark Blaug (in his film on Keynes, “John Maynard Keynes: Life/Ideas/Legacy 1995″). There Samuelson said:“I think there is an element of truth in the view that the superstition that the budget must be balanced at all times [is necessary]. Once it is debunked [that] takes away one of the bulwarks that every society must have against expenditure out of control. There must be discipline in the allocation of resources or you will have anarchistic chaos and inefficiency. And one of the functions of old fashioned religion was to scare people by sometimes what might be regarded as myths into behaving in a way that the long-run civilized life requires. We have taken away a belief in the intrinsic necessity of balancing the budget if not in every year, [then] in every short period of time. If Prime Minister Gladstone came back to life he would say “uh, oh what you have done” and James Buchanan argues in those terms. I have to say that I see merit in that view.”In other words, the need to balance the budget over some time period determined by the movements of celestial objects, or over the course of a business cycle is a myth, an old-fashioned religion. But that superstition is seen as necessary because if everyone realizes that government is not actually constrained by the necessity of balanced budgets, then it might spend “out of control”, taking too large a percent of the nation’s resources. Samuelson sees merit in that view.It is difficult not to agree with him. But what if the religious belief in budget balance makes it impossible to spend on the necessary scale to achieve the public purpose? In the same film James Buchanan argues that the budget ought to be balanced except in wartime—and while he does not explicitly endorse Samuelson’s argument that this is nothing but a useful myth, he does imply that there is no financial/economic/solvency reason for balancing the budget. Rather, it is to keep government in check, to ensure it does not grow and absorb too many of the nation’s resources. Ironically, Buchanan’s willingness to deficit-spend in wartime seems to imply that the US ought to almost always run deficits since we are almost always at war with someone. Hence, he seems to advocate nearly permanent budget deficits—no doubt unintentionally. Many might question that position on the argument that if it is OK to run deficits to destroy one’s enemy then it surely makes sense to run deficits to build a strong nation. Indeed, older readers of this blog will remember that our nation got interstate hiways on the argument that this is good for national defense, and that many of us got through college on “national defense student loans”. [emphasis added]

Matt Franko and I have been detailing the last two months' net spending by the Treasury while under the debt ceiling constraint and the numbers haven't been good. A total of only $9 bln of $NFA's have been created where the normal "need" to ensure system stability is around $90 bln.

Sharp reductions in $NFA creation in the past have led to "liquidation events" like we saw in July-August 2011. I believe another one could occur soon. A technician friend of mine told me to watch the 1491 level on the S&P 500 Index. A break below that would be the first sign that the market is turning on its heels.

It takes hubris beyond the borderline defining ignorance to say such a thing about - and to - the citizens of the USA. I'd bet money that every single one of the signatories to either our original Declaration of Independence or our Constitution would have spit on Tim's statement, in disgust. Probably on Timmy too.

It's an outlandish and insulting statement, to claim that a supposed "leader" can't ever tell the truth to his own people. Maybe Benedict Arnold's can't, but any honest person can.

“Tim’s objective was to help Main Street, not to hurt Wall Street,” said ["Crooked Larry"] Summers, a Treasury secretary during the Clinton administration and, for two years, Geithner’s [henchman] in the Obama White House. “Tim recognized that just as there are unintended victims in just wars, there were unintended and undesired beneficiaries in an appropriate financial rescue.”

Bullshit! And gag me with a silver spoon! Following honest actions, the only accompanying collateral damage is felt by Control Frauds. The only way to arrange for honest people to be "unintentially" harmed in the process of supposed reform is if the war engaged in is not against dishonesty, but against honesty itself. It all comes down to how "appropriate financial rescue" is defined, and who gets to craft that definition. America, consider yourself "framed" - along with this one sided debate among the perps, about you, the victims.

Any adaptive definition of an "appropriate" financial rescue would leave the electorate with improved quality of distributed decision-making, i.e., more distributed liquidity in order to leverage the unpredictable redistribution of talent that occurs following sexual-recombination, cultural-recombination and options-recombination. The best was for a diverse electorate to explore it's exploding options is to fully distribute the freedom to explore and select unpredictably adaptive option combinations. Arbitrary attempts by small numbers of arrogant crooks to pre-define which blue-bloods are best fit to select our national options is simply insane.

Here's my advice. Don't stand for it. Just say "No" to Geithner et al. Start practicing that, and be ready to say "Hell No" to the 0.1%, and anyone who works for them. Make it a habit, and you can't go wrong at this point. After some "appropriate political rescue" you can then practice actually thinking for yourself, deeply, and get your kids some more practice at that habit too.

People also have to understand that taxes are just another sterilisation mechanism. They are particularly important when government has to take over from the private sector to stimulate demand. Higher or lower taxes are needed to keep the correct amount of money circulating through the system.

In 1909 a dangerous subversive explained the issue thus. “Roads are made, streets are made, services are improved, electric light turns night into day, water is brought from reservoirs a hundred miles off in the mountains – and all the while the landlord sits still. Every one of those improvements is effected by the labor and cost of other people and the taxpayers. To not one of those improvements does the land monopolist, as a land monopolist, contribute, and yet by every one of them the value of his land is enhanced. He renders no service to the community, he contributes nothing to the general welfare, he contributes nothing to the process from which his own enrichment is derived. … the unearned increment on the land is reaped by the land monopolist in exact proportion, not to the service, but to the disservice done.”(13)

Who was this firebrand? Winston Churchill. As Churchill, Adam Smith(14) and many others have pointed out, those who own the land skim wealth from everyone else, without exertion or enterprise. They “levy a toll upon all other forms of wealth and every form of industry.”(15) Land value tax recoups this toll.

Saturday, January 26, 2013

Archaeology is starting to reveal evidence of the history of state currencies now in the eastern parts of ancient western civilization. Story here at Fox or here at Catholic Online. From the account at Fox:

More than 200 coins, mainly bronze [Ed: copper alloy], were found along with "various items of gold, silver and bronze jewelry and glass vessels" inside an ancient fortress within the Artezian settlement in the Crimea (in Ukraine), the researchers wrote in the most recent edition of the journal Ancient Civilizations from Scythia to Siberia.

Artezian, which covered an area of at least 3.2 acres and also had a necropolis (a cemetery), was part of the Bosporus Kingdom. At the time, the kingdom's fate was torn between two brothers —Mithridates VIII, who sought independence from Rome, and his younger brother, Cotys I, who was in favor of keeping the kingdom a client state of the growing empire.

More varying coin sizes evident in the picture above, when piled on top of the numerous other similar archaeological discoveries, providing further prima facie evidence that western civilization did indeed once possess the view recorded by Aristotle that state currency systems were not based on nature but rather on the law.

This view was subsequently lost at some point in western history.

Today, we have somehow again reached a point where our written laws and institutional arrangements reflect this view, but astonishingly many, I dare say virtually all, of those currently occupying relevant positions of authority within our civil government remain blind to this view; conducting policy blindly and stupidly, seeking to subject themselves (and the rest of us in the process) to either the availability of certain "noble" metals or institutions external to government.

It is indeed hard to understand the thought processes of these people.

Friday, January 25, 2013

US Federal Reserve is reporting a major deposit withdrawal from the nation’s bank accounts. The financial system hasn’t seen such a massive fund outflow since 9/11 attacks.

The first week of January 2013 has seen $114 billion withdrawn from 25 of the US’ biggest banks, pushing deposits down to $5.37 trillion, according to the US Fed. Financial analysts suggest it could be down to the Transaction Account Guarantee insurance program coming to an end on December 31 last year and clients moving their money that is no longer insured by the government.

Both the young Alexander Hamilton (savviest of the founders regarding finance) and his mentor Robert Morris (the wartime Congress’s superintendent of finance and America’s first central banker) believed that a domestic debt, supported by federal taxes collected from all the states, would unify the country. It would concentrate wealth, and yoke that wealth to a consolidated government. The goal was a nation capable of grand projects -- ultimately an economic empire to compete with England’s....

In letters written before the Constitutional Convention to George Washington, another supporter of sustaining federal debt via taxes, Madison made clear the nationalists’ shared desire to shore up public credit by throwing out the Articles of Confederation and forming a nation. Edmund Randolph opened the convention by charging the delegates to redress the country’s failure to fund -- not pay off, fund -- the public debt by creating a national government with the power to do so....

The founding alliance that made federal debt a supporter of nationhood, and nationhood a supporter of federal debt, came about in direct opposition to a radically egalitarian, communitarian movement that is in many ways the intellectual antecedent of modern social-contract liberalism.

The radicals of that movement -- evinced in episodes such as Shays’ Rebellion -- wanted to devalue the merchant class’s crushing loans to ordinary people; disconnect bondholders and bankers from government; prevent widespread foreclosures; more tightly regulate business; and disseminate, rather than concentrate, American wealth.

Between 2000 and 2010, the population of Delhi burgeoned from 15 million to 22 million while Shanghai's population swelled from 14 to 20 million. Compare that to the recent rise of an impromptu city near Allahabad in India: In the week after January 14, 2013, the first day of the Maha Kumbh Mela festival — during which Hindus gather for a sacred bath at the confluence of the Ganga and Yamuna rivers — around 10 million people had gathered there.

When the event ends five weeks later, approximately 100 million people would have moved into and out of Allahabad. (I say "approximately" because the precise numbers are difficult to come by.) It took 60 years for the population of Istanbul to grow from one to 10 million, and 50 years in the case of Lagos. At Allahabad, though, the population rose from zero to 10 million, give or take a few million, in just a week's time.

That's a slightly unfair comparison because the local government isn't going to put in place all the fixtures of a functional metropolis. However, it's only partly unfair. The Indian authorities do have to pull off the creation of a huge temporary tent city with minimal mishap. An enormous amount of urban planning, civil engineering, governance and adjudication, and maintenance of public goods — physical ones like toilets as well as intangibles such as law and order — and plans to deal with unexpected events goes into the creation of this city. Those are pretty much the main elements surrounding the creation of any city in the world.

There will also be a reasonably efficient dissolution of the city when the Kumbh Mela ends in late February, but that's another story. Some cities have declined over time, but I can't even imagine what it would take for one of the world's major metropolises to unwind.

The world’s top priority must be to get finance flowing and get prices right on all aspects of energy costs to support low-carbon growth. Achieving a predictable price on carbon that accurately reflects real environmental costs is key to delivering emission reductions at scale. Correct energy pricing can also provide incentives for investments in energy efficiency and cleaner energy technologies.

A second immediate step is to end harmful fuel subsidies globally, which could lead to a 5 percent fall in emissions by 2020. Countries spend more than $500 billion annually in fossil-fuel subsidies and an additional $500 billion in other subsidies, often related to agriculture and water, that are, ultimately, environmentally harmful. That trillion dollars could be put to better use for the jobs of the future, social safety nets or vaccines.

A third focus is on cities. The largest 100 cities that contribute 67 percent of energy-related emissions are both the center of innovation for green growth and the most vulnerable to climate change. We have seen great leadership, for example, in New York and Rio de Janeiro on low-carbon growth and tackling practices that fuel climate change.

To "balance fiat," we can't let liquidity be distributed widely enough to swap class-hegemony for national-agility?

Isn't that exactly what "balanced fiat" arguments come down to?

There are only two explanations available. Insanely stupid greed, or insanely stupid inability to grasp the difference between static value vs dynamic value. Both explanations may be at work simultaneously.

Operationally, does it matter which form of failure explains the failed actions of failed leaders? Regardless, the solution is to relieve them of duty, before they get us all killed.

It happens here, there and everywhere. Is this really so hard to understand?
RM Mitchell states:"The UK wisely kept its own currency, the pound, rather than join the mutual suicide pact of the euro nations. So the UK remains Monetarily Sovereign. It never can run short of its sovereign currency, the pound. It never needs to borrow pounds or to ask anyone for pounds.Unfortunately, UK politicians, like U.S. politicians, act as though their nation were monetary non-sovereign. They seek balanced [fiat] budgets; they cut [fiat] spending; they raise [fiat] taxes -- all harmful to their [real] economies."

Both UK & US politicians and bank lobbyists are doing anything possible in order to avoid distributed scrutiny of what we spend our public initiative on, where, at what tempo?

Why, if we did that, we might as a nation be more adaptive! So why wouldn't they want us to do that? Actually, why the hell shouldn't we just do that, regardless of the 1% want?

Even the crooks are misguided simpletons. They may be crooks, but they're dumb crooks, and they're in the way of honest people who - if allowed - would produce more real wealth and capabilities than the crooks can possibly imagine. This whole scenario beggars belief. It's a bad play, regardless of who the authors are. We have a choice pending. We evolve, or we carry on with Fiat Stupidity.

The first Central Intelligence Agency officer to face prison for disclosing classified information, was sentenced on Friday to 30 months in prison by a judge at the federal courthouse here.

The judge, Leonie M. Brinkema, said that in approving the sentence, she would respect the terms of a plea agreement between the former C.I.A. agent, John C. Kiriakou, and prosecutors, but “I think 30 months is way too light.”

The judge said “this is not a case of a whistle-blower.” She went on to describe the damage that Mr. Kiriakou had created for the intelligence agency and an agent whose cover was disclosed by Mr. Kiriakou.

Germany’s gold is on the move. For the first time since official gold transactions became more transparent, the Bundesbank has given notice that a significant portion of its holdings will be transferred home from France and the United States. Ostensibly, this is just a matter of monetary housekeeping. But why now?One possibility is that German policymakers believe that we are approaching an every-country-for-itself scenario – and only gold guarded by one’s own police is worth anything....

Project SyndicateGermany’s Gold DelusionSimon Johnson, former Chief Economist of the IMF, Professor at MIT Sloan, and Senior Fellow at the Peterson Institute for International Economics

Jeffrey D. Sachs | Professor of Sustainable Development, Professor of Health Policy and Management, Director of the Earth Institute at Columbia University, and Special Adviser to the United Nations Secretary-General on the Millennium Development Goals

“Tina Brown, editor of The Daily Beast, recently christened today’s job market as the “gig economy.” Her point is that fewer people seem to have full-time jobs; instead they have contract gigs. Being a freelancer or contract worker may actually be a practical way to survive this recession. It could also lead to new entrepreneurial vistas.*“

FORBES estimates the revenue flowing through the share economy directly into people’s wallets will surpass $3.5 billion this year, with growth exceeding 25%. At that rate peer-to-peer sharing is moving from an income boost in a stagnant wage market into a disruptive economic force.”

1. How can oil have a far greater impact on the world economy than its share of the world GDP would suggest? After all, BP’s World Energy Outlook to 2030 shows the world cost of oil is only a little over 4% of world GDP. 2. How can high oil prices continue to act as a “drag” on the economy, long after the initial spike is past?

3. Why isn’t a service economy insulated from the problems of high oil prices? After all, its energy use is relatively low.

In the mainstream political press, the standard practices of neutrality and balance carry with them an implicit assumption: that Democrats and Republicans are separate but equal in their ideological biases, with each group just as inclined to support its own team and attack the other side. The trouble is, data from psychologists and political scientists suggest that this might be a naive approach. At worst, it may fundamentally misunderstand the nature of American politics.

The latest evidence on this head comes from pollster and political scientist Dan Cassino of Fairleigh Dickinson University. In a national survey, Cassino examined belief in political conspiracy theories on both the left and also the right. He did so by asking Americans about two "liberal" conspiracy beliefs—the 9/11 "Truther" conspiracy, and the idea that George W. Bush stole the 2004 election—and two conservative ones: the "Birther" theory that Barack Obama was born in Kenya, and the claim that he stole the 2012 vote.

The results were hardly symmetrical. First, 75 percent of Republicans, but only 56 percent of Democrats, believed in at least one political conspiracy theory. But even more intriguing was the relationship between one's level of political knowledge and one's conspiratorial political beliefs. Among Democrats and independents, having a higher level of political knowledge was correlated with decreased belief in conspiracies. But precisely the opposite was the case for Republicans, where knowledge actually made the problem worse. For each political knowledge question that they answered correctly, Republicans' belief in at least one conspiracy theory tended to increase by 2 percentage points.

What's up with this? Cassino views these data as just one more indicator of an "asymmetry" in how Democrats and Republicans, or liberals and conservatives, respond to politics—with Republicans tending to be more partisan and tribal (and in this particular case, more willing to believe conspiracies about their political opponents), and Democrats less so. And while Cassino admits that his latest study wouldn't, in and of itself, constitute definitive proof of ideological asymmetry, he thinks it fits into a bigger body of evidence.

Who is doing the misinterpreting here. I submit that it is Professor Wren-Lewis who has missed the Godley Revolution, the Lerner Revolution, and the Minsky Revolution, as well as the bulk of Post Keynesianism, when he says,

If you bought the ‘responding to the last crisis’ narrative, you would expect to see some sea change, akin to Keynesian economics or the New Classical revolution. I suspect you would be disappointed. While I see plenty of financial frictions being added to DSGE models, I do not see any significant body of macroeconomists wanting to ply their trade in a radically different way. If this crisis is going to generate a new revolution in macroeconomics, where are the revolutionaries? However, if you read the history of macro thought the way I do, then macro crises are neither necessary nor sufficient for revolutions in macro thought. Perhaps there was only one real revolution, and we have been adjusting to the tensions that created ever since.

Of course, if he is thinking that all the above mentioned are part of the Keynesian revolution, no issue, but I don't think he is, especially when the above hold that the Keynesian-neoclassical synthesis is not Keynesian in any genuine sense, but rather a perversion of Keynes.

Now Mr Weidmann would like to see austerity policies in all deficit countries as the preferred tool of adjustment. However, this adjustment has caused mass unemployment in the European deficit countries and falling GDP with no light at the end of the tunnel so far. This, I believe, is the background of the conflict in the ECB. Some, like Mr Weidmann, are calling for internal devaluation policies, while others, like Mr Constâncio, are more open to other ways of economic adjustment.

By the way: there is a clear distributional effect of this choice. Adjustment by austerity leaves capital owners in surplus countries unharmed (at least it seems so to people who do not understand theparadox of thrift) while it hurts workers in the deficit countries. Adjustment by exchange rate changes leaves nominal wages untouched, but some capital owners in the surplus country lose because their investments in the deficit country are now worth less in domestic currency. However, while there is proof that the second avenue works the first – austerity – is without theory. There is no theory of expansionary austerity – it is all wishful thinking.

The crux of it:

When the euro system was introduced, many feared that some people in the ECB would think along national lines only, favoring policies that benefit only their country. It seems that this situation has now arrived.

There is much hype about “currency wars” in the international media this week, reaching the heights of the Davos gathering. The excitement seems to have been started by Bundesbank president Jens Weidmann, who earlier this week aired his concerns about an apparent politicization of exchange rates owing to an erosion of central bank independence and rising political pressures for more aggressive monetary policies.